Expectations are that the US CPI is approaching the Federal Reserve’s 2% target. It is possible that the slowdown is good news for the gold and Bitcoin market. However, experts say this will not signal any change in the possibility of another rate hike.
Critical data is coming that will affect the markets!
May CPI in the USA was 4%. Core CPI, on the other hand, declined to 5.3%. Experts predict both will see further declines. June CPI data will be available today at 15.30 CEST. The headline CPI expectation is to slow down to 3.1%. Many banks, including HSBC and Citi, estimate it to be 3%.
Core CPI is also expected to decline to 5% or 5.1% in June from 5.3% in May. Since June 2022, inflation has slowed for 11 consecutive months, falling from 9.1% to 4% on an annual basis. The effect of the slowdown in inflation may also lead to a decrease in the value of the dollar. OCBC Bank economists note:
Any disappointment (ie higher than expected real CPI) will lead to a recovery in the USD. However, if we get data below 3% for the headline or below 5% for the core, the USD may continue to fall further.
The US Dollar Index (DXY) fell more than 1.6% last week from 103.3 to 101.6. However, analysts in the TradFi market mostly agree that the slowdown in inflation is not expected to have any impact on the possibility of a new rate hike at the next FOMC meeting.
Moreover, the possibility of recession continues to hang over the US economy. However, for the Fed to reach its 2% inflation target, labor market conditions will need to soften and wages will need to increase slightly, which will only be possible when a “mild” recession forecast falls to “no recession”.
Weak dollar continues to benefit gold price
The dollar index (DXY) slumped to its lowest level in two months amid speculation that the US Federal Reserve (Fed) is nearing the end of its current rate hike cycle. This is an important factor driving the flows towards the gold price in dollar terms. Investors are waiting for signs of a cooling US labor market and a further slowdown in consumer prices. Therefore, they seem convinced that the Fed has limited room to continue tightening monetary policy.
Fall in US bond yields further supports gold
It is worth remembering that the US monthly employment data released on Friday and closely monitored show that the economy created the least employment in 2-1/2 years. Also, the New York Fed’s monthly survey revealed on Monday that one-year consumer inflation expectations fell to the lowest level since April 2021, falling to 3.8% in June from 4.1% the previous month. This caused the Fed to soften its hawkish stance. It also led to a further decline in US Treasury bond yields. So it’s possible that it’s causing the dollar to depreciate, benefiting the gold price.
Is gold ready to continue its upward momentum?
Meanwhile, Wednesday’s intraday positive move pushed gold above the $1,935 supply zone. It is possible that this may pave the way for further uptrends. However, traders are likely to stay away from aggressive bullish bets. Because traders probably prefer to wait for the latest US CPI figures to be released. This important report will likely affect the Fed’s future rate hike path. This will increase the demand for dollars in the near term. Therefore, it is likely to give a meaningful impetus to the gold price.
Technical view of gold price
Market analyst Haresh Menghani assesses the technical outlook for gold. From a technical standpoint, any further upside is more likely to face stiff resistance near the 100-day Simple Moving Average (SMA), which is currently pegged around $1,950. It is likely to trigger a short-term rally if it resolutely clears the $1,962-1,964 barrier that closely follows. Thus, it is possible to push gold beyond the $1,970-1,972 supply zone to regain the psychological $2,000 limit.
On the other hand, the $1,935 resistance breakout seems to be protecting the downside just ahead of the horizontal support at $1,925 and the weekly low near $1,912. Failure to defend said support levels could drag the gold price towards the round figure mark of $1,900 on its way to multi-month lows of around $1,893-1,892 touched in June. A convincing break below the latter would be seen as a new trigger for bearish traders.
Bitcoin price stands strong
Expectations are for Bitcoin price and the crypto market to gain from the US CPI slowdown. cryptocoin.comAs you follow, the leading cryptocurrency broke the $31,000 mark twice in the past month. However, BTC later lost its momentum and fell below this level. At press time, Bitcoin is trading at $30,641. However, 3% inflation will likely give BTC an upside boost.
If the breach is successful, it is possible that it will also serve as a bullish signal for the rest of the crypto market. The total crypto market capitalization currently stands at $1.15 trillion. Analysts expect it to break through the key $1.16 trillion barrier after the CPI data.
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